- About the firm
- SE London firm, 3 Partners, 50 staff, Socially driven ethos, changed focus of services and developed a niche
- The challenge
- The firm had a major debt issue compounded by low profits and increasingly poor morale.
- Implemented a 10 point plan and identified staff with the skills to deliver the main elements.
- Virtual elimination of debts and increased profitability.
As is often the case when we first meet clients, this firm was in a particularly difficult situation, with a major debt issue compounded by low profits and increasingly poor morale. We worked with them to implement a range of initiatives that have helped them to become not only financially strong, but recognised as one of the leading firms in their area.
This is a long-established, central London business with three partners and around 50 members of staff. They had a fairly typical mix of work types – private client, family, both commercial and residential property, housing and an immigration practice. With this mix of work they were quite reliant on Legal Aid, and were facing a significant (and indeed potentially ruinous) bill in respect of overpayment for government-funded work. With a turnover of just under £2m and having just experienced a very poor year in terms of profitability, there appeared to be little room for manoeuvre.
These underlying issues had led to the loss of several key fee earners and, moreover, the departure of the finance manager. As a consequence, productivity and morale were at an all-time low and it was clear to the partners that even ensuring survival and a reduction of the debt burden would pose a significant challenge. In the short-term, this would require an immediate focus on profit improvement and cash flow management, and in the medium-term there was a recognition that the firm needed to rebalance its work away from a dependence on Legal Aid in order to secure long-term profitability and financial independence.
Having been encouraged to contact us by their bank manager, who had seen the results of our work with another customer of his, we had an initial conversation and – as a measure of last resort – the Managing Partner agreed to commission us to help.
We conducted a thorough but rapid analysis of their management and financial information, confirming that the situation was indeed extremely difficult and significant changes would need to be made if they were to get on the road to recovery. We then met with the key people in the firm to understand their perceptions of the underlying causes of the issues, so that we could set about addressing the root causes, rather than the previous attempts the firm’s management had made to remedy the symptoms.
Through this process, it became clear that the ratio of staff to costs had become unsustainable, which had led to a salary freeze – and to the inevitable defection of some of the firm’s best people, who had been replaced by staff who were unable to complete the work to the high standards expected. The partners accepted that this had to change, and that market salaries had to be paid in order to attract the requisite calibre of people – the cash for which was to be generated by finishing the jobs that had been started and thus turning Work In Progress into cash.
We created a ten-point plan to get the firm ‘back on track’, acting as overall project managers and identifying the people within the business who had the skills to deliver the main elements. Without doubt, the most important aspect of this was to agree a timetable and repayment programme with the Legal Aid Agency and to secure the support of their bank. We then assisted one of the partners in running a consistent and relentless campaign to turn Work In Progress into cash, which ultimately yielded far greater rewards than even we had hoped.
One of the fundamental issues throughout this whole process was communication. If the partnership was to rebuild confidence and improve morale, communicating with the firm’s people about the rationale – and the means – for this financial improvement programme would be crucial, and we helped the partners to maintain a consistent flow of communication with staff, which secured the engagement needed to turn aspirations into results.
We also developed a more detailed management information package so that we could monitor progress regularly and effectively, and so that the firm could regain and maintain the confidence of both the bank and the Legal Aid Agency. Thus, our role was initially as analysts and strategists, subsequently as project managers, and throughout this challenging project we acted as the main conduit to the lenders. Of course, this could not all be achieved overnight, but after a year’s very hands-on engagement, we scaled back our involvement and after a further year were able to step back completely and allow the firm to manage their own finances from a position of strength.
The primary impact of our involvement was the virtual elimination of the debt that had come to threaten the existence of the business, reducing borrowings from the equivalent of eight months’ turnover to less than one month’s turnover. Profitability, which had been negligible, was rebuilt and became more than 1.5 times the benchmark for firms of this type.
We were also able to help the firm largely to eradicate unwanted staff turnover, although this inevitably entailed replacing underperformers with higher calibre (and better paid) staff. The firm had always had some key strengths in respect of its legal expertise and advisory abilities, but these strengths had been disguised by poor financial performance – and the partners were now able to build on these and become known as one of the most successful firms in the area.
Finally, the managing partner, who was also the largest equity holder, considers that the most important impact for him has been the ability to sleep at night and regain a balance in his life.
Another accountant previously engaged by the firm had diagnosed the problem as being overpaid but underproductive staff. We diagnosed the same ratios in the same data as signifying underpaid and underqualified staff, and the actions that followed allowed the firm to deal with the root cause of the problem rather than surface issues. More than any other that we have managed, this project underlined the importance of getting to grips in detail with the Work In Progress and relentlessly working to turn it into cash. Many firms could achieve a great deal by doing so.
This was an extremely challenging case and our approach was ambitious, but by developing a detailed and action-oriented plan and assigning owners to each key task, we were able to gain and maintain the confidence and trust of staff and crucial third parties. The firm has not looked back.